The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [111]
One of his favorite sources was the Pink Sheets, a weekly printed on pink paper, which gave information about the stocks of companies so small that they were not traded on a stock exchange. Another was the National Quotation book, which came out only every six months and described stocks of companies so minuscule that they never even made it into the Pink Sheets. No company was too small, no detail too obscure, to pass through his sieve. “I would pore through volumes of businesses and I’d find one or two that I could put ten or fifteen thousand dollars into that were just ridiculously cheap.”
Warren was not proud; he also felt honored to borrow ideas from Graham, Pritzker, or any useful source. He called that riding coattails and did not care whether the idea was glamorous or mundane. One day he followed up on a lead of Graham’s, the Union Street Railway.13 This was a bus company in New Bedford, Massachusetts, selling at a big discount to its net assets.
“It had a hundred sixteen buses and a little amusement park at one time. I started buying the stock because they had eight hundred thousand dollars in treasury bonds, a couple of hundred thousand in cash, and outstanding bus tickets of ninety-six thousand dollars. Call it a million dollars, about sixty bucks a share. When I started buying it, the stock was selling around thirty or thirty-five bucks a share.” The whole company was selling for half the value of its cash in the bank. Buying the stock was playing a fifty-cent slot machine that was virtually guaranteed to pay off a buck.
Under the circumstances, the company was, naturally, trying to buy its own stock, running an ad in the local New Bedford paper inviting shareholders to sell it to them. Warren, facing competition, began running his own ad: “Write to Warren Buffett at such-and-such address if you want to sell your stock.” “Then, because it was a regulated utility, I got the list from the public-utility commission in Massachusetts that showed the largest shareholders. And I worked that to find more stock. And I wanted to see Mark Duff, who ran the company.”
Visiting management was part of Warren’s way of doing business. He used those meetings to learn as much as he could about a company. Getting personal access to management played to his ability to charm and impress powerful people with his knowledge and wit. And he also felt that by becoming friendly with the management of a company, he might be able to influence the company to do the right thing.
Graham, on the other hand, did not visit managements, much less try to influence them. He called this “self-help” and thought it was “cheating” to get the inside dope, even though it was legal. He felt that by definition being an investor meant being an outsider, someone who confronted managements rather than rubbing shoulders with them. Graham wanted to be on a level playing field with the little guy, using only information that was available to everyone.14
Following his own instincts, however, Warren decided to visit the Union Street Railway on a weekend.
“I got up at about four a.m. and drove up to New Bedford. Mark Duff was very nice, polite. Just as I was about ready to leave, he said, ‘By the way, we’ve been thinking of having a “return of capital” distribution to shareholders.’” That meant they were going to give back the extra money. “And I said, ‘Oh, that’s nice.’ And then he said, ‘Yes, and there’s a provision you may not be aware of in the Massachusetts statutes on public utilities that you have to do it in multiples of the par value of the stock.” The stock had a $25 par value, so that meant it would be paying out at least $25 per share.*17 “And I said, ‘Well. That’s a good start.’ Then he said, ‘Bear in mind, we’re thinking of using two units.’ That meant they were going to declare a fifty-dollar dividend on a stock that was selling at